Joel L. Naroff

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Joel is the co-author, with Ron Scherer, of Big Picture Economics: How to Navigate the New Global Economy.

IN A NUTSHELL: "With import costs tame, inflation is not likely to be an issue that households or Fed members will have to worry about for a while."

WHAT IT MEANS: The strong dollar may be a problem for exporters but when it comes to import prices, it is an elixir. Import prices fell in March and even if you exclude energy, they were still down. Consumer goods, vehicles and capital goods prices all posted declines. Almost every imported manufactured good sector was down. The only worrisome trend is in food, which posted a sharp rise for the second consecutive month. Consumer food costs have been largely flat for a while but the import cost rise could lead to higher prices at the supermarkets in the next few months. As for exports, with the world economy sluggish, there is no pricing power for U.S. firms. Farmers saw a huge drop in their prices in March but that came after an even larger increase in February. Over the year, agricultural export prices are up nearly ten percent.

Last week, the sharp jump in unemployment claims raised concerns that the employment numbers would be weak. Job growth was disappointing but maybe we should wait until the revisions are released before we jump to the conclusion that the labor market is softening. The reason I say that is that unemployment claims fell back to a more decent level last week. These data are bouncing all over the place, which is not unusual, but the wild swings make it difficult to judge what is happening. I suspect that the labor market has cooled a touch but nothing like what the March employment report hinted at.

MARKETS AND FED POLICY IMPLICATIONS: There is a lot of discussion about the Federal Reserve moderating its massive liquidity binge. That is a real concern since the Fed has been keeping rates, especially mortgages, low. But the equity markets have probably been the major beneficiary of the Fed's largesse and any thought that the monetary authorities may be taking the drugs away causes alarm. If inflation fears are the primary worry of those members who want to scale things back, well for now, they have little to be concerned about. Import costs are going nowhere and that will likely keep domestic pricing power down. So while the theory says it will be difficult to unwind the liquidity without creating elevated inflation, the extent of the problem may not be great. Indeed, I think most economists would not be too worried about a couple of years of 3% to 3.5% inflation. Japan would kill for that. As for the markets, as long as the Fed keeps mainlining the speed, investors will remain hopeful this amazing rally will continue. But the longer-term warning is that a market that goes up when the economic numbers are weak because it means that the liquidity will keep flowing but falters when the data point to stronger growth and less liquidity is one to be very cautious about.